Later this afternoon the Federal Reserve’s FOMC is widely expected to announce tapering of QE. This month’s meeting has long been eyed as the one where Bernanke will make such an announcement. With this in mind gold’s recent declines have been attributed to tapering expectations. Many analysts have stated that should QE be tapered then the gold bull market will almost certainly be over.
Here at The Real Asset Company we struggle to see this point of view. Not only has gold responded negatively to the latest round of QE but it is not solely driven by the decision of one committee and the US dollar.
As we explain below, there are five good reasons why the long-term gold price will disregard any announcement that is made later today.
1. Gold doesn’t care about QE3
Just over one year ago, on Sept. 13, 2012, Chairman Ben Bernanke announced that the Federal Reserve would be embarking on QE3.
QE3, designed to ‘aid the U.S. recovery’ and a ‘substantial’ improvement in employment numbers, has seen a further $45bn of mortgage–backed bonds being snapped up every month.
Once this round of easing was announced, gold analysts and mainstream commentators alike declared that gold would reach new highs. Instead, gold has since dropped by nearly 23%.
This suggests that gold has not been falling in recent months because of tapering expectations.
However it does suggest that those who have been avoiding gold in anticipation of the impact of tapering may decide to invest after realising that the metal does not rely on QE. It is not unreasonable, therefore to wonder if we may see a surge in gold investment following tapering.